A firm is currently producing 200 units of output using 60 hours of labor and 80 hours of capital.The marginal product of labor is 12 units of output per hour,and the marginal product of capital is 15 units of output per hour.If the wage rate is $6 per hour and the rental rate is $3 per hour,then
A) the firm's use of labor and capital is cost-efficient.
B) the firm should use more labor and less capital.
C) the firm should use more capital and less labor.
D) we cannot determine if the firm's use of inputs is efficient without more information.

Question

Quizplus · Accepted Answer

The firm should use more capital and less labor because the marginal product per dollar spent on capital (15/3 = 5) is greater than the marginal product per dollar spent on labor (12/6 = 2).

A Firm Is Currently Producing 200 Units of Output Using